Joanne Cote v. Derby Insurance Agency, Inc., an Iowa Corporation, and Kevin Dorn, Individually ( 2018 )

IN THE SUPREME COURT OF IOWA
No. 16–0558
Filed March 9, 2018
JOANNE COTE,
Appellee,
vs.
DERBY INSURANCE AGENCY, INC., an Iowa Corporation,
and KEVIN DORN, Individually,
Appellants.
On review from the Iowa Court of Appeals.
Appeal from the Iowa District Court for Woodbury County,
Jeffrey L. Poulson, Judge.
Employer seeks further review of court of appeals decision
affirming district court ruling that corporation could not claim family-
member exception to employee-numerosity requirement in Iowa Civil
Rights Act. DECISION OF COURT OF APPEALS AFFIRMED; DISTRICT
COURT JUDGMENT AFFIRMED IN PART, REVERSED IN PART, AND
REMANDED.
Edward F. Pohren and Aaron F. Smeall of Smith, Slusky, Pohren &
Rogers, LLP, Omaha, Nebraska, for appellants.
Jay E. Denne and Stanley E. Munger of Munger, Reinschmidt &
Denne, LLP, Sioux City, for appellee.
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WATERMAN, Justice.
In this appeal, we must decide whether a small business that
incorporates thereby loses the family-member exception to the employee-
numerosity requirement in the Iowa Civil Rights Act (ICRA). The ICRA
does not apply to “[a]ny employer who regularly employs less than four
individuals. . . . [I]ndividuals who are members of the employer’s family
shall not be counted as employees.” Iowa Code § 216.6(6)(a) (2011). The
plaintiff worked at a small insurance agency and alleges she was sexually
harassed by her supervisor, the sole owner’s husband. The defendant
insurance agency, a subchapter S corporation, employed the owner and
her husband, niece, and grandniece, as well as the plaintiff and another
nonfamily member. The employer moved for summary judgment on the
ICRA claims on grounds that it employed fewer than four individuals (not
counting the family members). The district court denied summary
judgment on that ground, ruling that a corporate employer is ineligible
for the family-member exception. We granted the employer’s application
for interlocutory appeal and transferred the case to the court of appeals,
which affirmed that ruling. We granted the employer’s application for
further review.
We hold that a corporation does not have family members and
therefore cannot qualify for the family-member exception in section
216.6(6)(a). Accordingly, for the reasons explained more fully below, we
affirm the decision of the court of appeals.
I. Background Facts and Proceedings.
Patricia Georgesen started a small insurance business named
Derby Insurance Agency (Derby), a subchapter S corporation, in 1991.
She is the sole shareholder and president of Derby, which is located in
Sioux City. Patricia married Kevin Dorn in 2000 and changed her last
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name to Dorn. Both of them worked at Derby selling insurance. Kevin
served as a manager and supervisor.
Joanne Cote began working for Derby as a customer service
representative on May 6, 1998. She also performed administrative tasks,
such as reconciling Derby’s bank statements, ordering supplies, and
training new employees. Cote considered both Patricia and Kevin to be
her bosses. In 2003, Cote was promoted to office manager.
From November 2010 to October 2012, Derby employed the Dorns,
Cote, and Patricia Strawn, who is Patricia Dorn’s niece. Derby also
employed Scott Delperdang until February 2012. After he left, Derby
hired Candice Hunter, who worked for Derby until October 2012.
Additionally, Jasmine Derby, Patricia Dorn’s grandniece, worked part-
time at Derby during the summer of 2012 to help with filing. During the
eight weeks she worked there, Jasmine averaged twelve hours weekly.
She was paid $10 per hour.
On October 10, 2012, Derby sold its assets, goodwill, and book of
business to Derby Insurance Services, Inc. (Services). Derby ceased
operating as an insurance agency. Cote began working for Services and
continued to do so until March 19, 2014. Patricia Strawn also began
working for Services and became the office manager.
Cote filed a complaint of discrimination with the Iowa Civil Rights
Commission (ICRC) on April 10, 2013. Cote alleged that Kevin sexually
harassed her and other female colleagues over a seven-year period. The
ICRC issued Cote an administrative release on January 10, 2014. Cote
filed a petition in district court on April 7, 2014, naming Derby and Kevin
as defendants. Cote alleged claims for sex discrimination based on a
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hostile work environment under the ICRA, Iowa Code chapter 216. 1 Cote
later filed a motion to amend, which the court granted, and she filed an
amended petition adding common law claims for assault and intentional
infliction of emotional distress.
In December 2015, Derby and Kevin filed a motion for summary
judgment against Cote, on grounds that the ICRA did not apply because
Derby regularly employed fewer than four individuals, not counting
Patricia Dorn’s family members. Defendants also argued that Cote’s
claims were time-barred and that Cote’s common law claims were
preempted by the ICRA or unsupported by sufficient evidence to generate
a jury question. Cote resisted the motion and supported her resistance
with affidavit testimony that Kevin’s misconduct continued within the
limitations period.
The district court denied Derby’s motion for summary judgment on
the ICRA claims. The court ruled that the family-member exception
contained in Iowa Code section 216.6(6)(a) does not apply to corporate
employers and that Derby employed at least four employees during the
relevant time. The district court found genuine issues of material fact as
to whether there was misconduct actionable under the ICRA within the
limitations period. The court granted a partial summary judgment on
the common law tort claims as to conduct preceding April 7, 2012, as
barred by the two-year statute of limitations in section 614.1(2). But the
court declined to dismiss the assault and intentional infliction claims
entirely, finding questions of fact precluded summary judgment. The
district court did not decide whether the ICRA preempted the common
law claims.
1Cote’spetition initially included a retaliation claim against Services, but this
claim was dismissed in November 2015.
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Derby and Kevin filed an application for interlocutory appeal,
which we granted. We transferred the case to the court of appeals. On
appeal, Derby and Kevin argued that (1) the district court erred in ruling
the family-member exception in section 216.6(6)(a) is not available to
corporate employers, (2) the district court should have dismissed Cote’s
claims as untimely, (3) Cote’s common law claims were preempted by the
ICRA, and (4) Cote lacked sufficient evidence to generate a jury question
on her common law claims.
The court of appeals concluded that “employer,” as used in the
phrase “members of the employer’s family” in section 216.6(6)(a), is
limited to “individuals” and, therefore, affirmed the district court’s denial
of summary judgment on that ground. The court of appeals also
affirmed the district court ruling that fact questions precluded summary
judgment on the limitations periods. The court of appeals concluded
that the district court should have granted summary judgment on Cote’s
assault claim and therefore reversed on that issue. The court of appeals
declined to reach the ICRA preemption claim. One judge dissented in
part, concluding that Cote failed to raise a genuine issue of fact regarding
harassment and intentional infliction of emotional distress within the
statute of limitations. The dissent would have granted the defendants’
motion for summary judgment, dismissing the ICRA and intentional
infliction of emotional distress claims as time-barred.
Derby and Kevin applied for further review, which we granted.
II. Standard of Review.
We review a district court’s ruling on a motion for summary
judgment for correction of errors at law. McQuistion v. City of Clinton,
872 N.W.2d 817, 822 (Iowa 2015). “Summary judgment is properly
granted when there is no genuine issue of material fact and the moving
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party is entitled to judgment as a matter of law.” Id. We view “the record
in the light most favorable to the nonmoving party.” Id. We review
rulings on statutory interpretation for correction of errors at law. Id.
“On further review, we can review any or all of the issues raised on
appeal . . . .” Papillon v. Jones, 892 N.W.2d 763, 769 (Iowa 2017)
(quoting Woods v. Young, 732 N.W.2d 39, 40 (Iowa 2007)). We elect to
limit our review to the issue of whether an incorporated employer
qualifies for the family-member exception in Iowa Code section
216.6(6)(a). The court of appeals decision shall stand as the final
decision on the other issues in this appeal. See id.
III. Analysis.
We must decide whether a corporate employer may claim the
family-member exception to the numerosity requirement in section
216.6(6)(a). This is a question of first impression that turns on statutory
interpretation. Derby argues that when the employer is a corporation,
the family members of the sole owner should be considered the
employer’s family members. Cote, on the other hand, argues that
because corporations are fictitious entities, see Kerrigan v. Errett, 256
N.W.2d 394, 396 (Iowa 1977), Derby cannot have family members. We
conclude that as a matter of law, a corporation does not have “family
members” for purposes of Iowa Code section 216.6(6)(a).
We begin with the statutory text. Section 216.6 prohibits various
discriminatory employment practices. See Iowa Code § 216.6. However,
as noted, the statute does not apply to “[a]ny employer who regularly
employs less than four individuals. For purposes of this subsection,
individuals who are members of the employer’s family shall not be
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counted as employees.” Id. § 216.6(6)(a). 2 The four-employee threshold
“is a merits-based element of proof required for liability, rather than a
jurisdictional prerequisite.” Simon Seeding & Sod, Inc. v. Dubuque
Human Rights Comm’n, 895 N.W.2d 446, 458 (Iowa 2017).
The ICRA defines “employer” as “the state of Iowa or any political
subdivision, board, commission, department, institution, or school
district thereof, and every other person employing employees within the
state.” Iowa Code § 216.2(7) (emphasis added). “Person” is defined as
“one or more individuals, partnerships, associations, corporations, legal
representatives, trustees, receivers, and the state of Iowa and all political
subdivisions and agencies thereof.” Id. § 216.2(12). These statutory
definitions, however, are qualified by the phrase “unless the context
otherwise requires.” Id. § 216.2. Accordingly, while it is clear that a
corporation can be an “employer,” it does not follow that section
216.6(6)(a)’s reference to “the employer’s family” includes corporate
employers. The fighting issue is whether corporations can have “family
members” within the meaning of that provision.
We are to “construe[ the ICRA] broadly to effectuate its purposes.”
Id. § 216.18(1). “The ICRA was enacted ‘to eliminate unfair and
discriminatory practices in . . . employment’ and ‘correct a broad pattern
of behavior rather than merely affording a procedure to settle a specific
dispute.’ ” Simon Seeding, 895 N.W.2d at 462 (quoting Renda v. Iowa
Civil Rights Comm’n, 784 N.W.2d 8, 19 (Iowa 2010)). “We strive to
effectuate these purposes as we define the phrase ‘regularly employs less
2Title VII has a numerosity requirement without a family-member exception.
See 42 U.S.C. § 2000e(b) (2012) (defining “employer” as “a person engaged in an
industry affecting commerce who has fifteen or more employees for each working day in
each of twenty or more calendar weeks in the current or preceding calendar year, and
any agent of such a person”).
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than four individuals.’ ” Id. Applying the family-member exception
would give some family-owned small businesses a safe harbor for
discriminatory conduct prohibited by the ICRA.
We are mindful that the legislature chose to exempt small
employers from the ICRA to protect their freedom of association. Baker
v. City of Iowa City, 750 N.W.2d 93, 101 (Iowa 2008) (“Iowa Code section
216.6(6)(a) reflects the legislature’s intent to recognize and protect small
employers’ associational interests.”). The legislature enacted the
numerosity requirement in section 216.6(6)(a) when revising Iowa’s civil
rights statute in 1965. Id. The revisions were largely based on changes
advocated by Professor Arthur Bonfield in his 1964 law review article. Id.
(citing Arthur Bonfield, State Civil Rights Statutes: Some Proposals,
49 Iowa L. Rev. 1067 (1964) [hereinafter Bonfield]). We have looked to
“this law review article as an expression of the rationale underlying the
legislature’s adoption of the suggested revisions.” Id. The article
advocated for the “enactment of an employment discrimination statute
that included a small-employer exemption.” Id. Professor Bonfield
explained,
Almost all fair employment practices acts exempt small
employers, which are defined as employers with less than a
specified number of employees. The general consensus
seems to be that notions of freedom of association should
preponderate over concepts of equal opportunity in these
situations because the smallness of the employer’s staff is
usually likely to mean for him a rather close, intimate,
personal, and constant association with his employees.
Id. (quoting Bonfield, 49 Iowa L. Rev. at 1109). Because the legislature
adopted a small-employer exemption, as recommended in the Bonfield
article, we concluded “that the legislature made the policy decision that
‘freedom of association should preponderate over concepts of equal
opportunity’ in situations involving small employers.” Id. We held that
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“Iowa Code section 216.6(6)(a) reflects the legislature’s intent to recognize
and protect small employers’ associational interests.” Id.
Many family businesses in Iowa—including family farms—operate
as corporations or limited liability companies. Clearly, the family
members of a sole proprietor are not counted in determining whether the
employer falls under the ICRA. So why count family members of the
owner who chooses to incorporate his or her small business? The close-
knit, small-group interpersonal dynamics at the office or farm do not
change merely because a sole proprietor incorporates. The legislature
may well have intended to exclude from the ICRA all businesses with
fewer than four nonfamily-member employees whether incorporated or
not, but we are bound by the text of the statute. See Iowa R. App. P.
6.904(3)(m) (“In construing statutes, the court searches for the legislative
intent as shown by what the legislature said, rather than what it should
or might have said.”). We are not free to rewrite section 216.6(6)(a). We
must defer to the legislature to amend that provision if it chooses to
allow small incorporated employers to omit the owner’s family members
from the employees counted to determine whether the ICRA applies.
“In the absence of a legislative definition, we strive to give words
their ordinary meaning.” Simon Seeding, 895 N.W.2d at 461. In Black’s
Law Dictionary, “family” is defined as “[a] group of persons connected by
blood, by affinity, or by law, esp[ecially] within two or three generations”
or “[a] group consisting of parents and their children.” Family, Black’s
Law Dictionary (10th ed. 2014). Merriam-Webster defines “family” as “a
group of individuals living under one roof and usu[ally] under one head”
or as “a group of persons of common ancestry.” Family, Merriam-
10
Webster’s Collegiate Dictionary (11th ed. 2014). 3 We have never held that
a corporation has family members.
We rely on the ordinary meaning of the phrase “individuals who
are members of the employer’s family” in Iowa Code section 216.6(6)(a)
and hold that a corporate employer has no family members as employees.
Our conclusion is reinforced by our precedent holding corporations do
not have “family members” within the meaning of business insurance
policies. See Huebner v. MSI Ins., 506 N.W.2d 438, 440–41 (Iowa 1993)
(construing uninsured motorist policy and rejecting argument that
policy’s definition of insured, including “family members,” extended
coverage beyond the named insured, a corporation); see also 8A Steven
Plitt et al., Couch on Insurance § 118:24, at 118-46 to -47 (3d 2014 rev.
ed.) [hereinafter Plitt], (“When the named insured is a corporation,
interpretation problems arise as to whom coverage extends if the policy
includes . . . ‘family members.’ Since a corporation is not an individual,
the majority of jurisdictions find that ambiguity does not exist since no
reasonable person can expect a corporation to . . . have family
members.”). 4
3Because we hold Derby, a corporation, is ineligible for the family-member
exception, we need not decide how broadly to define family members to determine, for
example, whether a niece or grandniece is included under Iowa Code section
216.6(6)(a). A contrary holding would also raise questions as to whose family members
are not counted as employees when the corporate employer has multiple owners,
officers, and directors. Derby argues these issues are suited for case-by-case
adjudication. We resolve this case through a textual analysis of chapter 216, while
noting Derby’s proposed interpretation would raise myriad questions better resolved
through legislative policy choices and resulting statutory amendments.
4This treatise recognizes that “[w]hen the named insured is a partnership,
interpretation problems are less problematic since partners are individuals who can
suffer injury and have families; however, differences in outcomes still exist since a
partnership can be a separate legal entity.” 8A Plitt § 118:24, at 118-47. This case
does not present the question of whether a partnership may claim the family-member
exception under Iowa Code section 216.6(6)(a).
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Derby relies on Burwell v. Hobby Lobby Stores, Inc., 573 U.S. ___,
___, 134 S. Ct. 2751, 2759 (2014), in which the United States Supreme
Court held that a closely held for-profit corporation could claim religious
beliefs protected by the Religious Freedom Restoration Act (RFRA).
Significantly, the Hobby Lobby majority based its holding on the federal
government’s concession that nonprofit corporations enjoyed RFRA
protection, and for that reason, the Court rejected the notion that the
“corporate form” prevented Hobby Lobby and other for-profit
corporations from claiming RFRA protection. Id. at 2769–70. We have
no equivalent concession here. Hobby Lobby is not persuasive authority
for the conclusion that a corporation can have family members within
the meaning of Iowa Code section 216.6(6)(a).
Most states lack a family-member exception in the numerosity
provision of their antidiscrimination statutes. We found no case holding
a corporation can have family-member employees excluded from state
statutory numerosity thresholds. A case on point supports Cote’s
position. The Washington Court of Appeals declined to apply that state’s
family-member exception to a corporation that employed its owner’s
family members. Patten v. Ackerman, 846 P.2d 567, 568–69 (Wash. Ct.
App. 1993). The Washington antidiscrimination statute defined
“employer” to include a corporation that employs eight or more persons
but “exclude[d] as employees any individual employed by his or her
parents or spouse.” 846 P.2d at 569 (citing Wash. Rev. Code
§ 49.60.040. The Patten court concluded that the wife and sons of the
owner of the corporation were employees of the corporation—not its
owner personally—and, therefore, counted to meet the numerosity
threshold. Id. We reach the same conclusion here. Patricia Dorn’s
family members were employed by Derby, not by Patricia individually.
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Derby, a subchapter S corporation, cannot avail itself of the family-
member exception in section 216.6(6)(a).
IV. Disposition.
For these reasons, we affirm the decision of the court of appeals
and affirm the district court’s rulings denying summary judgment on the
ICRA claims and common law claim for intentional infliction of emotional
distress. We reverse the district court ruling denying summary judgment
on the assault claim for the reasons set forth by the court of appeals. We
remand the case for further proceedings consistent with this opinion,
including entry of summary judgment dismissing the assault claim.
DECISION OF COURT OF APPEALS AFFIRMED; DISTRICT
COURT JUDGMENT AFFIRMED IN PART, REVERSED IN PART, AND
REMANDED.